Center for Advanced Study & Research on Intellectual Property

CASRIP Newsletter - Spring/Summer 1997, Volume 4, Issue 2

The JPOs Review of the Appropriateness of Intellectual Property Damages

Responding to the concerns of some Japanese companies, the JapanesePatent Office (JPO) began to review the appropriateness of intellectual propertyinfringement damages as granted by Japanese courts.1 The JPOhas been campaigning to take the pro-patent tradition root in Japanese industry.

As one of the initiatives, the JPO Commissioner has organized anadvisory committee and published a number of proposals on restructuring the intellectualproperty system to protect the fruits of R & D in an adequate way.2One of the proposals is to increase damage awards to ensure sufficient incentives forinventors to continue their efforts for technological innovation.3

The current provision to define patent infringement damages, Article102, suggests that the common form of damages to compensate patent infringement is theamount of money a patentee is normally entitled to receive for licensing a third party toexploit the patent. It can be interpreted that any amount over that is extra andexceptional, because it provides that the court may reduce the monetary damages unless theinfringer, willfully or with gross negligence, infringed the patentee's patent.4

Legislative history also indicates that the legislator's intent behindthe provision was to simply provide restitution for the patentee's loss from theinfringement.5 The originally introduced proposal on theprovision was based on the constructive trustee theory under German Law, guaranteeing theentitlement of infringer's profits to the patentee. The proposal was strongly criticizedby the Legal Affairs Bureau as conflicting with the fundamental Japanese tort law if itwas interpreted to enable the award of infringer's profits regardless of the actualdamages resulting from the patentee. In response to the criticism, the language wasrevised to simply give patentees a presumption that the infringer's profits being theamount of the patentee's damages resulting from infringement. As a result, the provisionfunctions to merely shift the burden of proof and thus the patentee should establish theactual amount once the infringer successfully rebuts such presumption. The originallanguage defining the amount of money entitled to give licensing the patent forexploitation being just part of damages was revised to redefine the money being damagesitself. Although the Legal Affairs Bureau was not convinced with respect to theappropriateness of adopting the language suggesting the licensing amount as a nominaldamage, paragraph 3 providing the amount entitled for licensing as the damage remainedintact and became effective.

Japanese courts interpreted Article 102 to mean that the principle formof measuring infringement damages is the amount being normally entitled to license thepatent for exploitation and thus seldom award damages in the form of lost profits.6 The definition of the amount normally entitled to license thepatent for exploitation appears to similar to that of the reasonable royalty provided 35USC Section 284. Review of Japanese case law revealed that the amounts granted by Japanesecourts are much lower than those granted.7 This is becauseJapanese courts rely heavily on the infringers' conditions and published industry royaltyrates and royalty rates licensing government owned intellectual property. This practicehighly contrasts to U.S. practice which relies heavily on the patentee's conditions.Accordingly it is very unlikely that Japanese courts would grant an amount exceeding theprofits actually made by infringer. Japanese industry's perception of the current damageaward is clearly split. A urvey conducted by a research institute revealed that companiesin some industry fields, such as pharmaceutical and chemical industries which heavily relyon the reimbursement for the R & D investment through the patent right, want toincrease the current damages.8 Interestingly, electronics andautomobile industries where Japan maintains a cutting edge in competition tend to find thecurrent damages being adequate. One third of the companies who found the current remedybeing inadequate want to introduce U.S. type punitive damages which would multiplying thecompensatory damages up to three times, if infringers are found to willfully infringetheir patents.

A simple solution to respond the need to increase damages would be torevise Article 102. However, to obtain a consensus to revise the provision to introduce apunitive damages would be a difficult task because of a number of reasons, including: (1)there is a clear split in view of Japanese industry on the appropriateness of infringementdamages; (2) damages are traditionally considered within the territory of courts, not thepatent office; and (3) Japanese Supreme Courts repeatedly denied the constitutionality ofprovisions granting more than compensatory damages. The attempts to introduce increaseddamages to copyright infringement and product liability torts have not been successful assuch damages being conflict with the fundamental goal of compensating damages underJapanese tort system. Nevertheless, JPO will conduct research on damages available inother jurisdictions and seek opinions from patent professionals and academia which mayproduce a bill to revise the current patent law in the near future.

To accommodate the requirements provided in WTO TRIPS Article 31, andagreements between U.S. and Japan Patent Office Commissioner, JPO announced a proposedrevision on the Administrative Guidelines (Un-nyo Youryou) which regulates the arbitrationproceeding for granting a compulsory license. Japanese Patent Law provides arbitrationproceedings to grant compulsory licenses on (1) dependent inventions (riyou hatsumei) theexploitation of which invention infringes other parties' patents or design registration;9 ; (2) inventions which has not exploited continuously for threeyears from the grant of the patent in Japan;10 and (3)inventions the exploitation of which are required for the interests of public.11 Although the arbitration was seldom used to request a license,this provision has been criticized by U.S. industry to give patentees pressure to grant alicense since Japanese companies can always resort to the compulsory license provisionsonce the negotiation break up. JPO has long adopted practice restrictivly grantingcompulsory licenses but this proposed revision introduced explicit restriction to ban thegrant of a compulsory license in violating requirements provided in bilateral andmultinational agreements.

Publication of Revised Japanese Trademark Law

As reported in past issues, last year the Japanese Trademark Systemwent through a major revision by introducing the registration of trade dress and expandingprotection of unregistered well-known mark. A booklet explaining the essential points ofnew trademark law and answering frequently asked questions is now available from JapanesePatent Office

Where a patentee or exclusive licensee requests a party who has intentionally or negligently infringed the patent right or exclusive license to compensate for damages resulting from the partys infringement, the profits obtained by the party through the infringement shall be presumed to be the amount of damage suffered by the patentee or exclusive licensee.

A patentee or exclusive licensee may request a party who has intentionally or negligently infringed the patent right or exclusive license to the amount of money the patentee normally being entitled to the patentee to receive for granting a right to exploit the patent.

The preceding paragraph shall not preclude a request in the amount of damages exceeding the amount referred therein. In such a case, the court may take into account the fact that the party did not willfully, or with gross negligence, infringe the patent in determining such amount.